Thread by @jasonfurman

What reduces economic activity: (i) the virus leading people to choose to distance or (ii) government required distancing.

Research on services in March/April has found it is much more (i) than (ii) than many people thought.

BUT, mistake to think is always/everywhere 100% (i).

1. Manufacturing and construction mostly shutdown when it was required to and continued when it was allowed to. That is a smaller share of GDP than services but clearly a case of govt policies reducing economic activity (for better or worse, may be worth doing to save lives).

2. In some cases govt required social distancing may be like an investment that pays off: less economic activity today but better virus control & more activity in the future. In this case one would see a short-run tradeoff between activity & govt social distancing, but worth it.

(One limit of the investment view may be non-linearities. If you can effectively eliminate the virus like Asia you get a huge payoff, if you only greatly reduce it then absent continued suppression it can come back like in Europe so little/no payoff.)

3. What was true of services in the United States in March may not be always/everywhere true. I have no doubt that if we could measure weekly GDP in France, the UK or Germany it went down discontinuously after their latest lockdown policies.

4. Even within services policies vary and may be non-linear. My sense is that indoor dining is below mandated capacity in many places because people are afraid to eat in a restaurant. If so reducing the mandated capacity will not reduce activity but banning indoor dining would.

Also the aggregate evidence is unclear. Places that eliminate the virus do better than those that do not, I wish we had shut everything down for a month, smashed the curve, & then had testing to keep it down.

But states with 50X virus of other places do not have less activity.

I think we very much need to eliminate indoor dining and bars, indoor entertainment, other large gatherings, etc. I think that because I am 98% sure it will save lives, even though I am 85% sure it will hurt short-run economy and only 25% certain it will help longer-run economy.

I wrote about how to think about tradeoffs and why I think it is important to in this longer thread on Friday.

https://twitter.com/jasonfurman/status/1322196501666344960?s=20

P.S. Should have included: no clean distinction between people's behavioral response and govt policy.

In part behavior affected by norms/rules set by govt.

In part govt sets policy endogenously based on behavior/norms of people.

P.P.S. I thought it was implicit in the above but should be explicit: Just because research found something for Mar/Apr does not mean it is true now (I've made the point re UI and work incentives). E.g., younger people may have chosen to distance then but might need rules now.